Robust auditing crucial to ESOS success

Mandatory energy audits could substantially improve energy efficiency, but only if they are robust and firms act on their recommendations

Details of a new corporate energy auditing scheme have finally emerged, but its success will depend on the quality of audits, training, and on the motivation of individual companies to act on recommendations.

The Energy Savings Opportunity Scheme (ESOS), which is now in effect, is intended improve energy efficiency in thousands of large firms by mandating energy audits every four years.

It was first consulted on last year and DECC published definitive requirements in a consultation response and regulations on 26 June.

The scheme has generally been welcomed by environmental professionals.

But they have some reservations. With just six months before the qualification date of 31 December 2014 and 18 months before the compliance date, there are concerns about the ability of many companies to deliver on the new audit requirement. This is largely due to a lack of awareness and audit skill shortages.

There are also concerns about possible use of low-cost alternatives to full audits allowed under the regulations.

The ESOS obligation affects all firms (not public bodies) with more than 250 employees, €50 million annual turnover or a balance sheet exceeding €43m in the UK. Between 7,000 and 10,000 organisations in a wide range of sectors are thought to be covered.

Small firms that are part of a larger qualifying corporate group are also included, but can choose to disaggregate and report separately. Where there is more than one principal subsidiary, these can also choose to aggregate if they wish. Franchisees may aggregate with other franchisees, with the franchisor, or disaggregate to report separately.

Joint ventures are to be treated as separate entities under ESOS if they qualify. But compliance for assets held in trusts normally falls to the qualifying organisation that is party to the energy supply agreement, the response confirms.

Smaller organisations are encouraged to consider participating voluntarily.

The scheme covers all energy used directly in the UK, including the domestic portion of international journeys.

Continuous energy use

Participants are obliged to measure all energy use over a continuous 12-month period or explain why if this is not possible. Energy delivered but passed on unused to third parties such as tenants can be deducted.

Firms must carry out audits every four years to identify cost-effective energy savings opportunities. These must be “undertaken, overseen or reviewed” by a qualified lead assessor unless the firm is already certified under the ISO 50001 energy management standard.

They must also deliver a full record of compliance to the Environment Agency at the end of each period and maintain an ESOS evidence pack.

At the most basic level, notification must include information about the participant signed off by a named director or equivalent who must demonstrate approved qualification status. For compliance as part of a group undertaking, information has to be given for the whole group.

Participants can disclose extra information if they wish. This can include further ESOS audit findings, action taken as a result, and energy consumption and management in general.

But there is no legal requirement to act on any potential savings identified in the audit and therefore they may not all be realised in practice.

Perhaps the most controversial aspect of ESOS is that participants can choose not to comply through a comprehensive ESOS or ISO 50001 audit.

They can instead opt to rely on display energy certificates (DECs) and on Green Deal assessments for buildings, as long as these account for at least 90% of energy use. But neither of these encourage a comprehensive approach and culture of continual improvement.

The Environment Agency will publish a list of participants that have complied with ESOS, along with any additional voluntary information. It will also name non-compliers along with details about their failures and any fines imposed.

But DECC has decided that full findings of audits reported to the Environment Agency will not be published only confirmation they have complied with minimal comment.

It says requiring more than this would have amounted to ‘gold-plating’ of Energy Efficiency Directive, but lack of public data will largely rule out sectoral benchmarking and a key reputational driver.

The most likely DECC scenarios predict £1.6bn will be saved in energy bill by 2030. Most of these will be shared evenly between the commercial, industrial and transport sectors.

The latest savings estimate is £0.3bn lower than in the consultation stage, with net costs to business rising from £19m to £35m.

But consultancy WSP believes deeper savings equivalent to 10-20% could be achieved for an average firm based on low-cost, straightforward measures.

Another complication is that interim guidelines published alongside the consultation response will be superseded by finalised ones from the Environment Agency as scheme administrator in the autumn. That will lead to some uncertainty for compliance.

ESOS will take its place in an already crowded policy arena, overlapping with reporting requirements under the EU emissions trading system, Carbon Reduction Commitment and now mandatory carbon reporting.

To prevent duplication and reduce costs, DECC will allow data compiled for these schemes to be used for ESOS as well. It will also allow flexibility on dates so work can be synchronised with other schemes.

But ESOS' scope is much wider than that of other schemes, because it covers all aspects of an organisation’s energy consumption in buildings, industrial processes and transport. It also focuses on energy use efficiency rather than on carbon emissions.

DECC now says audits must cover “areas of significant energy use” amounting to at least 90% of total energy spend or usage, down from 95% originally discussed.

But recorded usage and opportunities for saving energy are dependent on how much organisations use contracting firms that use their own fuel.

Those that contract out much of their activity, such as road, air and shipping freight deliveries, will see large volumes of energy usage excluded compared with those using their own fleets, even if their activities are otherwise identical.

Some of these contractors will themselves fall under ESOS, but separate reporting will make meaningful sectoral benchmarking very difficult even if data was to be published.

Smaller contractors, which account for two thirds of road freight firms, will not be covered at all.

DECC estimates 9,400 organisations will have to submit their first audit findings by 5 December 2015, but will have more time - until 5 December 2019 - for the second phase. 

Many organisations affected have not previously carried out audits, while others have only covered part of their energy use and emissions for very specific compliance purposes such as the CRC.

As a concession for the first phase, DECC says it will accept any energy audit (such as the voluntary Carbon Trust Standard) back to December 2011 if it complies with minimum ESOS requirements.

A key issue in discussions on how to implement the audit requirement has been availability of suitably trained auditors. Consultancies have warned that a shortage is likely to further complicate compliance with the first period deadlines.

But DECC’s impact assessment estimates the most likely requirement is about 1,500 – a figure it believes the industry can provide.

To ensure adequate high-quality auditing expertise, DECC will set up a register of approved auditors by December. Lead assessors must comply with a new PAS 51215 energy assessor standard developed by standards body BSI.

The energy efficiency and sustainable building sectors have broadly welcomed ESOS.

Andrew Warren, director of the Association for the Conservation of Energy (ACE), believes the scheme has “enormous potential”.

But he has concerns this may not be fully realised unless audits are rigorously carried out and recommendations are followed up. “That is a very important aspect which has not been recognised sufficiently,” he says.

Warren objects to the use of DECs rating buildings A-G as “alarming”, and says these are unlikely to provide sufficient information to satisfy the directive. He adds that there have been too few non-domestic Green Deal assessments for that route to be a realistic option.

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